Hi traders! Unfortunately, the last two weeks have not been very good for cryptocurrencies. If you have been shorting the market you may be up quite bit though! Bitcoin has fallen from slightly below $10,000 two weeks ago to around $8,000 this morning. Looking at the other coins traded on GDAX, Ether has fallen from $830 to $675, Litecoin from $180 to $130, and Bitcoin Cash from $1,800 to $1,150.
The sell-off has been across the board as usual. Although the price changes over the last two weeks are large, this sell-off has not been nearly as fast as the sell offs in December and January. We should expect volatility to continue to taper off – the market is still cooling off. There are a couple important things traders should be watching from a technical standpoint.
Where’s The Resistance?
First, let’s go back to early-mid April when Bitcoin had the huge breakout from the upper $6,000s to the low $8,000s. This breakout ended the previous downtrend. The price took a while consolidating in the $7,800 – $8300 range before moving up towards $10,000.
Looking at the chart, we should expect significant resistance in this area – and the horizontal line on the chart below shows the resistance at $7,800. Both of the charts are from cryptowat.ch.
Something Has To Give
Now let’s take a look at the downtrend. The selloff is clearly contained under a line, as shown in the chart below. This chart uses a 12 hour time frame. Notice how this downtrend line is about to intersect the support line. One of two things must happen soon – the resistance holds and we break above the downtrend line and start another rally, or the sell-pressure is too great and the price crashes below the support.
If the price of Bitcoin breaks down and falls below the support, it is likely that there will be a sharp sell-off to the previous level of resistance, which is in the $6,500 to $7,000 range. In this case I expect the sell-off to be exacerbated by technical traders who will push the market into over-sold territory.
I would expect a surge in prices back to $8,000 followed by more consolidation. If this scenario plays out I will watch the price chart (primarily) on the one-hour timeframe and pay close attention to the market depth charts. I do not think the market depth charts tell us much information at the current moment.
And If It Holds?
If the support can hold up against the sell pressure, I expect the price to consolidate somewhere between $8,000 and $8,500 until the downtrend line is clearly broken. Then a slow move back up to $9,000 can be expected. This means that the downtrend line will be broken by going sideways. This contrasts with mid-April where the price spiked hard as soon as the downtrend line was broken.
The difference is in the number of short sellers. In mid-April the number of short sellers was at a record high. This meant that a lot of people had to cover their positions (buy back in to close their short position) and the market was primed for a short squeeze where everyone buys in at once (we saw this when the price jumped $1,000 in an hour). I am not expecting a similar spike this time.
Assuming one of these possibilities occurs, holding more cash than usual is a good idea. Either the price crashes sharply and we can buy back in significantly lower or we have time to wait for the market to consolidate and buy back in when the market seems much more primed to move up.
Good luck trading!